2 BackgroundHMO Delegated Model in California – Partial financial risk of medical group for professional fees while institutional costs lie with the health planApproximately 1 million Anthem Commercial HMO members are assigned to these “partial risk” groupsMedical Groups have no financial liability for institutional costs for inpatient hospital, outpatient surgery or hospital ER facility fees. As such, very little incentives to monitor or utilize more cost efficient networksMedical GroupCapitated ServicesProfessionalHealth PlanNon-CapitatedServicesInstitutional

3 Background Result Increasing Cost trends and premiumsVariability in costs across the network+Variation in practice patternsVariation in cost control mechanismsNo risk for health plan costs but responsibility for directing care in the networkResultIncreasing Cost trends and premiums

8 Program DevelopmentIn 2007 Blue Cross of California introduced one year performance incentive program focused on cost trend reduction in Med Surg/SNF, Outpatient Surgery, and ER.Program measured Per Member Per Month (PMPM) cost trend and established unique projected targets based upon medical groups historical trendMedical groups with actual PMPM below target receive sharing in cost savings at the end of the measurement yearMeasurement year from Jan 1, 2007 to Dec 31, 2007Medical groups above targets receive no sharing in cost savings but no financial risk.

9 Program DesignDevelop group specific benchmarks or cost targets in the categories of Med/Surg/SNF, Outpatient Surgery, and ERTargets are unique to each medical groups historical pattern of resource utilizationBase targets on a PMPM to allow for cost reduction through appropriate utilization and/or unit cost reductionNo financial risk for exceeding targets/No disincentivesSavings shared was based upon schedule of 20%, 30% or 40% of savings achievedPercent shared savings based upon percent PMPM reduction below targetProvide feedback and reporting of actionable data to groups

11 Results91 Medical Groups Participated in our Year 2007 Shared Risk ProgramOn June 30th 2008 Anthem Blue Cross paid out more than $11 million dollars in Performance Program payments to over 43 (47%) of the 91 participating medical groups with an average payment totaling well over $300,000.

12 Results Where was the Impact in Savings Seen? IP MED/SRG OPS ER/UC# OF PMGS√113176TOTAL43

18 Program VulnerabilitiesSmall membership groups subject to higher variability in PMPM trendStatistical variation greater with smaller membershipNo risk adjustment or case mix adjustment of dataDifficult to measure comparisons to networkTargets established from baseline year which is subject to variations in PMPM costPotential for High or Low TargetQuarterly feedback on program progress subject to IBNRProjections of groups impact early in the year is difficult to interpretPays for improvement > High AchievementGreatest Payout related to greatest savings opportunitySavings is based upon “unanticipated cost avoidance”How do you measure prospective savings?Applicable to California delegated Model Only

19 What happens to Quality?Question: Did this Program Impact Colonoscopy Rates?Comparison of Colonoscopy Rates from Baseline to Measurement YearAll Groups20062007Visits/1000%Hospital9.59529.6245ASC8.764711.8755Hospital OPS0.1110.05Total18.4710021.56

20 What Happens to Quality?No significant change or negative impact on P4P scores of participating groupsNo significant change or negative impact seen on Grievance & Appeal rates from participating groups during measurement yearCould quality metrics be tied to cost efficiencies as pre-requisites to payoutShould resource utilization measures/thresholds be established to ensure appropriate services are not compromised

21 Modifications to Program in 2008/2009Included smaller membership groups by pooling data by regionsExpanded participating membership and opportunities to smaller medical groupsEncouraged more collaborationEnhanced Data reporting for greater feedback on performanceMore focused reporting to outline specific areas of opportunityDeep Dive reporting and analysis50% shared savings for top quartile participating groupsRewarding for High AchievementASC Thresholds – Demonstrated minimum of 10% ambulatory surgery center use for shared saving payout for Outpatient Surgery

26 Projected Rx Cost Reduction with Increased in Generic UsageEstimated NETWORK average brand price and average generic price for each therapeutic class for the measurement yearThese prices are calculated using Anthem Blue Cross paid amountExpressed in pmpm dollarsThese prices can vary from year to yearEstimated saving per additional 1% increase in generic usage for each therapeutic class

27 Qualifying for Generic Drug Rate (GDR) BonusIf the GDR in any drug class is less than the average PPO GDR for the same drug class ORIf the GDR in any drug class is less than the 25th percentile of the overall HMO GDR for the same drug classThen the PARTICIPATING MEDICAL GROUP is ineligible to receive an incentive for such drug class(es)

29 Summary Targets efforts at high impact drug classesReports can isolate meaningful opportunities to increase GDRExcludes classes with no generic alternativesCompares increase in GDR to secular trendsTranslates increase in GDR to real savings through actual dollars savedOverall provider bonus opportunity is lower than with use of global GDRs